Office Sales

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GUEST OBSERVER
Investors splashed out a record $29 billion to purchase commercial property (more than $2m) – office, industrial and retail - in the 12 months to December nationally, up 20 percent on the last two years with foreign investors taking a 38 percent share.
The total, comprising more than $17.2 billion worth of office transactions, $4.8 billion worth of industrial transactions and $7 billion worth of retail property transactions, is an extraordinary 32 percent up on the five year average of $22 billion following a similar rise on the $18 billion average in the previous year.
It was more likely than not that significant levels of investment would continue with foreign investment, particularly from China, and institutions, the key players.
What we have seen over the last three years has been an extraordinary investment market in terms of sales by number and value.
Local trusts and funds along with foreign investors have dominated the markets, however in 2015 domestic institutions, recovering from the GFC and replacing private investors as competitive buyers once again, have suddenly found themselves outbid.
While institutional investors were the second largest player with 35 per cent of purchasers, their share of the market had fallen from 48 percent (Funds 31 percent, Trusts 17 percent) in 2014 to 35 percent (Funds 21 percent, Trusts 14 percent) in 2015, while the foreign investor take at 38 percent was more than 70 percent up on its 22 percent share in 2014.
Weakness in the currency, high relative yields and economic growth (however below trend) had been the key drivers while the large amount of off-shore capital seeking  Australian property had encouraged many domestic investors to dispose of property, reweight portfolios and change exposures.
This led to a record year of approximately $29 billion of turnover in commercial property. Conversely, many market fundamentals demonstrated the two-tone nature of the Australian economy – some indicators deteriorated in Perth and Brisbane, many showed substantial improvement in Melbourne and Sydney. Brisbane appeared to have reached a base whilst Melbourne and Sydney continue to improve.
The capital markets had exhibited greater degrees of volatility throughout the year and had finished the year largely unchanged with the ASX200 returning around 1 per cent, the Australian dollar down over 10% against the US dollar and 10 year bonds yielding approximately 2.8 percent.
While property yields have firmed across the board returns remain significantly higher with unlisted property returning up to 10 percent and AREITS returning 13 percent over the last five years. There is no doubt this has also had an impact on investment decisions.
He said the firming of investment yields had yet to fully run its course.
In some markets fundamentals are improving rapidly. We believe this will lead to further tightening in yields as investment capital starts to price in expectations of future NOI (net operating income) growth. This part of the yield cycle is just beginning.
At a glance:
Office sales - $17.2 billion in sales; previous year $16.7 billion; five year average $12.4 billion. 221 properties sold, 326 in 2014.  Foreign investors purchased 45 percent of the stock ($7.6 billion).
Industrial sales - $4.8 billion in sales; previous year $5.55 billion; five year average $3.8 billion;  221 properties sold, 277 in previous year. Foreign investors purchased 36 percent:
Retail sales - $7 billion in sales ; previous year $7.2 billion; five year average $5,8 billion. 197 properties were sold, down from the previous year of 221. Foreign investors purchased 26 percent.
Tony Crabb is Savills Australia’s national head of research and can be contacted <a href="https://www.savills.com.au/blog/author/109174/Tony" target="_blank">here</a>. 
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Foreigners take 38% of record commercial property sales: Tony Crabb

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The Singaporean developer and hospitality group Roxy-Pacific has sold an office building in Sydney’s CBD for $153 million.
In an aftermarket filing on Friday, Roxy-Pacific says the sale WAs subject to the findings of a due diligence exercise and the approval of both parties’ boards of directors.
Its 117 Clarence Street purchaser is an Australian-domiciled institutional investor whose name was not disclosed.
Roxy bought the 11-storey property at 117 Clarence Street from Altis Property Group in 2015 for US$81 million ($108.1 million) with the Tong Eng Group.
The building is 100% occupied with a net lettable area (NLA) of 12,517 sq m, and a weighted average leasehold expiry (WALE) by income of 2.6 years.
The impact of recent stock withdrawals for residential conversion had led to unprecedented demand for B Grade office space in the Sydney CBD, according to recent research from Savills Australia, who noted the subsequent spike in rents.
Savills noted Sydney’s Western Corridor was a precinct that is undergoing a "vast transformation" both commercially and culturally.
The precinct is fast becoming a regional centre for Asia Pacific’s financial services leaders as well as offering an array of small bars and fine dining options, it noted.
Positioned 120 metres from Wynyard Station and Bus Interchange, 117 Clarence occupies a large corner site of over approximately 1,231 sqm.
The building has undergone a series of capital upgrades including advancements in the lift rides and door mechanisms as well high quality end of trip facilities (bike racks, showers and change rooms).
The property was listed for sale through Simon Fenn, Ian Hetherington and Ben Azar of Savills Australia and Richard Butler, Josh Cullen and Steven Kearney of Inc RE.
About 60 per cent of leases within the building expire before 2020 and 41 per cent of income is underwritten by Government. The building has a 4.5-star NABERS Energy rating.
 
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Roxy-Pacific sells Clarence Street, Sydney office block for $153 million

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Perth office transactions fell 64% for the year ending June 2015, down to $134 million from $424 million in the previous year.
According to the latest Perth office briefing from Savills Research, five properties were sold during the year to June, down from the previous year of nine, and less than half than the five year average of 11. 
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Up to June 2015 an average of 53% of spaces leased were in the Mid CBD precinct, with 54% of the deals were new tenants, 23% subleases and 17% renewals. 
 
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Perth office transactions fall to half long term trend: Savills

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A 12-level Perth CBD office building near the Elizabeth Quay foreshore development is up for sale through an expressions of interest closing on 17 September.
The property, <a href="https://www.realcommercial.com.au/property-offices-wa-perth-501670729" target="_blank">12-14 The Esplanade</a>, is being offered through Savills Perth agents Chas Moore and Paul Craig, has above ground parking for 138 vehicles, a ground floor tenancy and seven levels of offices - a total lettable area of 7,957sqm. 
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The building is 93% leased to blue-chip corporate tenants with a Weighted Average Lease Expiry (WALE) of 2.32 years (based on finalisation of a new direct lease to DBP) and boasts a 4.5 Star NABERS rating.
Savills marketing agent Chas Moore said this is one of only a handful of established properties on the doorstep of Elizabeth Quay. 
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CBD office up for grabs on Perth's Elizabeth Quay

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Brisbane CBD office transactions are up 27% for the 12 months to June 2015 when compared to the previous year, with a total of approximately $1.473 billion worth of sales.
According to Savills 14 properties were sold to June 2015 , down on the five year average of 15.
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Leasing deals greater than 500sqm increased 46% when compared to year ending June 2014, with around 49% of space leased in the Government precinct. 
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Brisbane office transactions up 27% to June: Savills

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The sovereign wealth fund China Investment Corporation (CIC) has secured Investa Property Group's portfolio of nine office towers.
It came after a knockout bid of more than $2.45 billion.
The Australian Financial Review described it as the biggest direct real estate transaction in Australian history.
It attracted more than 20 bids, nearly half of those came from Asia, including from China's biggest privately owned business, Fosun International Ltd. 
Bankers running the sale, Morgan Stanley and UBS AG secured bids from the United States and South Africa.
CIC and its partner LaSalle Investment Management, had been tipped as the consortium to win the battle for Investa.
China’s largest state investment fund bought 10 shopping centres in France and Belgium this month for about €1.3 billion, one of its biggest acquisitions in Europe along with affiliate AEW Europe.
Following the announcement of CIC’s acquisition of the Investa property portfolio, Colliers International have complied the charts below on Chinese investment in Australian commercial property.
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Chinese sovereign wealth fund buys Investa's nine office towers

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With 4.96 million square metres of total stock, Sydney CBD is the largest office market in Australia, according to Savills’ latest office research.
It is also the most sought after; a fact highlighted by strong prime property rents and yields.
Savills recorded approximately $5.66 billion of office transactions, in the 12 months to December 2015, in the Sydney CBD.
This is up 19 percent from $4.78 billion in the previous 12 months, and up on the five year average of $3.25 billion.
During the same period 29 properties were sold, down on the previous 12 months (47), and down on the five year average of 31.
Sydney experienced its strongest year of office investment in over a decade in 2015.
Among the prominent ones was the sale of 60 Margaret Street (50%) to an offshore equity buyer for $279.5 million, reflecting a circa 6.5% passing yield.
The building comprises a 38-level hexagonal office block including three levels of car parking, three floors of retail space known as the Metcentre, 30 floors of office space and two plant levels. It has a total net lettable area 47,047 sqm.
In July 2015, Investa Property Trust concluded the sale of nine assests to China Investments Corporation (CIC).
The portfolio generally comprised Premium or A Grade office buildings.
Six of the assets are located in the Sydney CBD.
At a reported $2.455 billion ($1.825 billion in the Sydney CBD), the sale represents an approximate 25% increase on the understood December 2014 book values and a reported portfolio yield of 5%.
This arguably reset the benchmark for market yields and IRRs for good quality CBD assets by 25 to 50 basis points tighter over the quarter.
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Sydney CBD office transactions up 19 percent on year: Savills

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A ground floor office showroom in Sydney’s Rosebery has sold at $395,000.
<a href="https://www.realcommercial.com.au/property-offices-nsw-rosebery-501768298" target="_blank">Suite 102, 30-40 Harcourt Parade</a> has a floor area of 90 square metre.
Housed in a prominent commercial building, it has direct street access to Mentmore Avenue. One of the features is an open plan with high ceilings and plenty of natural light.
The property is leased to BCA on a two-year lease till 2016 with the option to extend for one year.
It earns a gross income of nearly $33,840 per annum. 
The deal was through James Reeves of LJ Hooker Commercial.
The property previously traded for $320,000 in 2014.
There were nine sales in the block last year, the most expensive was sold in January for $610,000. 
 
 
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Office showroom in Sydney's Rosebery sells for a shade under $400,000

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Office transactions in Sydney's Parramatta district came in at around $243 million in the 12 months to December 2015 according to the February office market briefing from Savills, down 63 percent from the previous year.
Savilss noted transactions in 2014 to December totalled $665 million, noting current figures are down on the five year average of $310 million.
The briefing said investment demand for A Grade stock in Parramatta remains strong, though limited opportunities currently exist for investors. 
"The increase in investment activity over the past four years has been largely due to the transaction of many of Parramatta’s prime buildings, as vendors seek to take advantage of sharpening yields and improved investment demand from local and foreign investors," it said.
"However, the 'Private Investor' purchaser category was the most active in the investment market for the 12 months to December 2015, purchasing 36 percent of the stock sold (or $86 million worth of office transactions). Similarly the 'Private Investor' category had the most transactions."
 
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Parramatta office buys down 63 percent in 2015: Savills

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Property tycoon Harry Stamoulis has bought the One Collins Street tower complex at the top of Collins Street, Melbourne, for $125 million.
It was bought from fellow BRW rich lister Robert Magid and his sister, Nora Goodridge.
The complex comes with 17-storey modern tower overlooking Treasury Gardens and an 1870s heritage residence that served as Australia's first war cabinet room in 1914.
The Australian Financial Review says it was struck on a tight 5.25 per cent yield and at a high building rate of more than $9000 a square metre for the fully leased A-grade office complex.
The Australian says it was sold by Knight Frank.
Rabobank, Mckinsey &amp; Co, Grant Samuel and IBISWorld are tenants at One Collins Street. 
The Magid family acquired it for $43.1 million in 1997.
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